Public-private partnerships: A way forward for New York

Jul. 5, 2009

Workers remove a section of the Tappan Zee Bridge in Nyack September 8, 2007. Due to overcrowding, Joseph Pezzulo teaches his earth science class on the stage in the auditorium of Gorton High School in Yonkers Feb. 2, 2007. The construction of a new high school to replace the ailing, outdated facility is mentioned in a state report on how public-private partnerships could benefit education. / Tom Nycz/The Journal News Stuart Bayer/The Journal

Written by

Carl McCall

Learn more

$192 billion. That is the number of stimulus dollars requested for infrastructure projects in New York state - from a federal allocation of just $3.9 billion.

Over the next 20 years, New York will fall $100 billion short of its highway and bridge funding requirements just to maintain, let alone improve, our current system. The Metropolitan Transit Authority alone faces an unfunded $25 billion, five-year capital program.

Meanwhile, our schools are in disrepair, our hospitals and nursing homes are among the oldest nationally, our telecommunications and broadband system is disjointed and inaccessible to many taxpayers, and our energy infrastructure is overloaded.

Addressing the vital infrastructure needs of this state will cost money - and lots of it.

Choices ahead

Facing a multibillion budget gap next year, New York does not have a penny to spare, and, there is not much more we can tax. The financial upheaval of the past year exposed New York's addiction to spending and reliance on taxes.

Doing nothing is not an option for two reasons. First, the safety of our citizens depends on well-maintained infrastructure that in many cases has already exceeded its design life. Second, infrastructure development is the key to our economic revival and ongoing competitiveness: with every $1 billion of new investment spending estimated to generate 18,000 new jobs.

The only option left is to be smarter about how we spend the money we do have, to do more with less.

Recognizing the need to change the way New York does business, Gov. David Paterson created the State Asset Maximization Commission last October to find a way to deliver infrastructure faster, cheaper, and with improved performance and greater accountability to taxpayers.

New partnerships

At least 23 U.S. states, along with numerous nations, have not only saved billions, but have undertaken more projects, in less time, by broadening their tool-kit for delivering infrastructure. Virginia has delivered more than $9 billion in transportation projects since its public-private partnership law was passed in 1995. Last month, Florida closed a $1.8 billion deal for the expansion of Interstate-595 through private investment. The United Kingdom's Private Finance Initiative has delivered more than 900 new infrastructure projects totaling more than $50 billion. In Canada, British Columbia has more than 20 public-private partnership projects that have been, or are scheduled to be, delivered on time and on or below budget.

Learning from these states and nations, New York should utilize public-private partnerships to deliver infrastructure faster, at lower cost, and with greater attention to safety, maintenance and operations over the long-term.

Spending risks

Currently, the state takes on almost all project risks, bearing responsibility for construction, design and project delivery costs, thereby assuming the burden for changes in raw material prices - which can be extraordinary as steel can see price inflations of up to 23 percent in a year - for schedule delays, for project scope changes, etc. These combined factors often cause the final cost of a public works project to grossly exceed the project's budgeted cost.

Through thoughtfully structured public-private partnerships, however, the state can transfer these risks and, in the process, employ the ingenuity of the private sector to provide economical fixed-price contracts.

Infrastructure assets are critical to the everyday needs of society and can generate stable, inflation-protected returns that are largely shielded from market volatility. Consequently, the fiscal crisis has not disrupted the flow of funds into this sector as it has for others, and new players continue to foray into the infrastructure investment arena, including the nation's largest pension funds, developers, operators, and other private equity investors. Between 2006 and 2008, total private equity commitments to infrastructure grew from approximately $60 billion to $180 billion.

Filling a void

In the face of this growing demand for infrastructure investment, New York stands on the outside looking in. While other states capture this private-sector investment, New York lacks an entry point for private-sector ideas and innovation.

That is why the SAM Commission recommends creating a board to oversee and enable public-private partnerships. Modeled after Infrastructure Ontario and Partnerships British Columbia, government entities created in Canada to facilitate and oversee public-private partnerships, this board would ensure New York's public policy goals are kept intact and provide critical oversight while attracting new private capital.

Through consultation with state agencies, private companies and non-profits, the commission has recommended a list of 25 specific projects, ranging from wind power in Buffalo, to new school construction in Yonkers and Syracuse, to the Gowanus Expressway on Long Island, to rehabilitating bridges across the State. These projects represent more than $30 billion in needed infrastructure investment that is geographically diverse and spans all asset classes.

Time to act

In order to take advantage of the available private investment dollars the state must be empowered to engage the private sector, gathering their ideas and harnessing their ability to share risk. Now is the time for us to be bold, to think creatively, and in the process to stretch our taxpayer dollars to build the future for New York state.